Harlan T. Beverly writes from Austin, Texas about Entrepreneurship, Marketing and Business for Engineers and Other Logical Thinkers.

Tuesday, December 23, 2014

Startup Life: When to tell your team... we're almost out of cash!

Is your startup nearing $0 cash? When do you tell the team?

You are not alone!

Doing a startup is hard. Whether you are bootstrapping, VC funded, or even backed as an internal skunkworks, you may find that your bank account is getting awfully close to zero. You are not alone. Nearly ever startup I've ever been a part of has hit this point. It is scary. It is stressful. And what do you do about the team? Some of them, you know, depend on that regular startup paycheck!

Here's what you need to know!

Fiduciary Duty: First, you have a duty to your shareholders which is actually very simple: if you are nearing "insufficient cash" to pay your debts (defined as non-investment capital), then you must inform your shareholders (and/or board of directors) very soon. They may be able to help. My advice: have a plan in place that shows how much you need, or how you will come through anyways. Even better: don't get here... raise more funds before this point.

Duty to Employees: If there is ANY doubt that you might miss a paycheck... you need to tell people as soon as you have that doubt. Personally, I like the 1-month left rule... if you will be able to make 1 more months of paychecks, and then no more... it's time to share the news... REMEMBER TO ALSO share your plan. Employees will want to know how they can help! Let them. Let them help with the fundraising... make slides... etc. Let them help with sales (the whole company can do sales!).

If it get's dire... like down to 2 weeks... one thing you might do is ask if any employees can take partial deferred salary. This is salary, you are asking them to risk, on the hope that you'll make it through. 100% is not a great idea (unless you are the founder), but I've gotten nearly 100% participation in a 50% program in the past... and we made it through!

I hope this helps you know what to do (this time or next time). Remember, it's normal, it's stressful, but you DO need to tell your people. The best employees will only respect you more for your transparency. The worst, who quit on you, you don't need anyways.

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About Me

In 2005, Harlan founded and was CEO of Bigfoot Networks, Inc., a gaming
hardware company, which was acquired by Qualcomm in 2011. After Bigfoot,
Harlan founded and was CEO of Karmaback, Inc., a very successful Social
Networking SaaS company, which was acquired in 2013. Harlan then worked for Creeris Ventures as a virtual VP of Marketing for
their 9 portfolio companies. Harlan is currently CEO of Key Ingredient, a high-tech Cloud technology company, focused on delivering Food Recipes via the Cloud. Harlan also recently completed his PhD in
Business and regularly lectures at U.T. Austin on Business, and is
passionate about the convergence of hard science with Business.

Before becoming an entrepreneur, Harlan worked at Intel and was
responsible for architecture and development of corporate server
networking products, including the world's first 10-Gigabit Ethernet
adapter. He later joined start-up Britestream Networks and helped
develop a 100% CPU off-load SSL security solution. Harlan has over 12
patents from his engineering career, has been published in dozens of
books and articles.

In his 12 years leading companies and teams, Harlan has successfully
launched 5 hardware and 15 software products including the Killer NIC,
2007 Network Product of the Year (CPU Magazine). Harlan has also raised
over $20MM in venture financing in the challenging intersection of
entertainment and technology.